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A minimum income guarantee – for now and forever
Posted on 22 Apr 2020 Categories: Blog, Coronavirus, New economic models, Event reports
by Caroline Hartnell
Last week, we covered New Economics Foundation’s (NEF’s) first weekly economics briefing which looked at how we can win the economic recovery after coronavirus. This week’s focused on ‘Fixing the Social Safety Net’. The Chancellor has announced a package of measures to support people struggling with the economic fallout of coronavirus, but it is clear that they will not be enough and many people will fall through the net. These people will have to rely on our social security system, weakened by 10 years of austerity. Interestingly all three speakers come from organisations advocating for introduction for some sort of minimum income guarantee – for now and for the long term.
Need for a minimum income guarantee
In the final two weeks of March, almost 1.5 million people applied for universal credit – ten times the usual number. Unfortunately universal credit is not fit for purpose, said NEF senior economist Sarah Arnold. ‘It cannot keep people from hardship.’ The social security system has been eroded over the last decade, especially for working age people. The government has now increased universal credit and working families tax credit by 20 per cent but this has only made up for one-fifth of the cuts since 2010. £94 a week is simply not enough to live on. In addition, people have to wait five weeks. Advance payments are available, but they are loans and will need to be paid back, reducing future payments.
‘We now have a two-tier system,’ said Arnold, those qualifying for 80 per cent of previous earnings under the government’s Job Retention Scheme and those reliant on universal credit. In these circumstances, NEF proposes a minimum income guarantee, which would be more generous at around £200 pw excluding rent, and available to all who need it. It would also be available quickly, without upfront means testing, using the universal credit advance payment facility, currently five days. If you are overpaid you could be asked to pay it back later in a tapered way.
A minimum income guarantee is vital for the current crisis, said Arnold, and also in the long term for strengthening the social security system.
What about UBI?
How is this different from UBI – universal basic income? Isn’t this a chance to introduce UBI? There are two main barriers to UBI, according to Arnold. First, giving it to everyone is problematic as the government doesn’t have everyone’s details. Second is affordability. A minimum income is more affordable than UBI as it isn’t paid to everyone, only to those who need it.
Perhaps more significantly a proposal to strengthen the existing system is more likely to be preserved after the crisis than something completely new like UBI.
Where will the money for minimum income guarantee end up?
NEF’s proposed minimum income guarantee is very similar to the Liveable Income Guarantee that openDemocracy has been calling for, also pitched at around £200, based on a petition plus testimonials from people who are left out of the government scheme. But for openDemocracy economics editor Laurie Macfarlane, the biggest question about the government’s bailout proposals is: ‘will the money end up where it’s needed most? The government is spending unprecedented amounts. Who will benefit and who will bear the cost?’
His conclusion is that the money will mostly end up with those who already have most, the asset holders. Much of the money paid by the government will go straight out in rent, mortgage payments, debt payments – ie to protect the incomes of asset holders. Thus the bailout for working people could end up funnelling to asset owners, increasing rather than reducing inequality. ‘Money flows to the top.’
If we want to change this, said Macfarlane, ‘we need to change the balance of power. If we pump money in without changing power relations, inequality will get worse.’ In some other European countries, governments are talking about freezing rent and utility bills. In Denmark, the government scheme is conditional on companies not laying people off.
How can we change the balance of power? Controlling rents, cancelling/reducing debts for people who are struggling, wealth taxes to prevent another surge in asset prices – these are just some of the ways it could be done. However, economist Ann Pettifor, speaking at NEF’s first briefing, emphasised the difficulty with taxing wealth. ‘In a global economy,’ she said, ‘we can’t tax wealth, for example, because companies and rich individuals simply move their wealth elsewhere.’
Learning from success
Workers’ have fewer rights in the UK than in most other European countries, which is one reason why there is less conditionality around the government scheme to ensure bailout money goes to those who need it. Despite the relative lack of power, the TUC – Trades Union Congress – was instrumental in securing the government Job Retention Scheme. What are the lessons of this successful campaign?
‘We were addressing a very clear problem with a very clear solution,’ said Kate Bell, TUC Head of Rights, International, Social and Economics. Business associations were supporting it. It was a solution for the long term as well as for the crisis.
The TUC has also asked for universal credit to be raised to £206 pw, 80 per cent of average wages, more like the rest of Europe where people’s incomes are protected if they lose jobs. ‘Here too we have a clear idea of the problem and a clear(ish) solution,’ she said. Government needs to lift the benefit cap and remove the five-week wait, but ‘the core message is the need for a big increase in the basic amount’. There is a wide basic consensus on this among progressive organisations, she said. But, unlike with the Job Retention Scheme, business associations are not calling for this. ‘We need to present it in a positive light. Protecting incomes is part of recovery, not just for the crisis. So many people now need the social security system that claimants can’t be stigmatised. It’s a system for everyone; it’s how we support each other, help people recover, get back on their feet; it’s not just something for people who are “other”.’
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Posted on 22 Apr 2020 Categories: Blog, Coronavirus, New economic models, Event reports